State Street to Eliminate 850 Jobs in IT Restructuring Effort

(July 20, 2011) — State Street, the third-largest custody bank, is set to slash 850 jobs over the next 20 months after its operating expenses climbed 20% to $1.8 billion.

The latest job cuts total approximately 3% of the financial services company’s worldwide work force of nearly 29,450 people and follow 1,400 reductions that were announced last year, and are scheduled to be completed by the end of 2011.

According to Bloomberg, the bank’s Chief Executive Officer Joseph “Jay” Hooley is slashing spending in an effort to offset the impact of low interest rates, which lowers the return the bank earns on investments and on lending to institutional investors.

State Street noted that all the laid off workers are in information technology, describing the job cuts as part of an “IT transformation” in the latest phase of a four-year effort to streamline the company’s operations. The Boston-based financial services giant is heavily dependent on technology in its business, as it manages investments and handles record-keeping on trillions of dollars for pensions and other investors.

The job cuts also follow the firm’s 18% boost in its second-quarter earnings from a year ago, to $502 million. This is not the first time the company has proceeded with layoffs despite seemingly strong finances. In late 2008, after the firm accepted a $2 billion cash infusion from the federal government, it announced plans to slash 1,800 jobs. In 2009, the firm repaid the funds and as markets rebounded, it posted a $1.6 billion profit in 2010.

In the midst of job cuts, the firm has also been heavily criticized and scrutinized in recent months for allegedly cheating their clients on currency transactions in order to maximize their profit, manipulating foreign exchange rates charged to the state’s pension funds.

In June, Ohio Treasurer Josh Mandel, who acts as custodian to Ohio’s public pension schemes including the Ohio Public Employee Retirement System, School Employees Retirement System of Ohio, State Teachers Retirement System of Ohio and the Ohio Police & Fire Pension Fund, said that he has asked the state’s attorney general, Mike DeWine, to look into whether pensioners “have been exploited by custodial banks when conducting foreign currency exchanges.” As of April 30 2011, the four funds had about $39 billion of their $170 billion in combined assets invested in international securities, according to Reuters.

“I am concerned that the banks may have manipulated foreign currency trade prices in order to maximize the banks’ profit, at the expense of Ohio public servants, businesses and taxpayers,” Mandel wrote in a letter dated June 14.

The investigation by the Ohio Treasurer came as a burgeoning number of states are looking into investigations or lawsuits against State Street and its rival BNY Mellon, which both offer foreign investment services to pensions and other types of funds. These custody banks have been accused of preying on public pension funds that lack the resources to maintain proper oversight on FX trades.